4.3.3.50 Income from Child Care

Work related child care rebate

Income from child care includes money earned:

  • informally from baby sitting (in the carer's home or the child's home), or
  • formally from family day care schemes.

Income deductions

A deduction is made for any expenses incurred by a person that relate exclusively to caring for a child in their care.

Examples:

  • the cost of meals and drinks,
  • recreational aids such as toys, books or games,
  • the increased cost of lighting and heating rooms for children, and
  • depreciation on household items used by children.

Explanation: For pension, benefit or allowance purposes, income from child care is treated the same as for self-employed people.

Rate of income assessed

Only a portion of the income received by the person is assessed as income. The rate of income to be assessed is the net profit derived, after deducting the costs associated with providing the care, from the gross amount received.

The net profit received can be determined with reference to the person's income tax return or other documentary evidence of expenses.

The income is then assessed according to income from self-employment for sole traders.

Policy reference: SS Guide 4.7.1.20 Assessment of income for sole traders & partnerships

Effect of 'A New Tax System'

From 1 July 2000, some people can be part of the registered GST system, have an ABN and be required to lodge Business Activity Statements. Business Activity Statements WILL NOT replace income tax returns for determining social security income support entitlement, as they do not contain the necessary information.

Other people can have an ABN to avoid having payments withheld as tax, at the top marginal rate, but will not necessarily have registered for GST.

Policy reference: SS Guide 4.7.5.30 Business Requirements & Fringe Benefits

No evidence of expenses provided

If a person does not provide evidence for the level of deductions, the following formula is applied to determine the percentage of the household costs that can be attributed to the business:

A × B × C = D where:

  • A = days worked in a year ÷ 365.
  • B = hours worked in a day ÷ 24.
  • C = % of home used for child care.
  • D = business percentage to be applied to total household costs for the period of child care provision.

Example: A person provides child care for 140 days (A) @ 12 hours per day (B). Seventy-five per cent of the home (C) is used for child care purposes.

  • D = (140 ÷ 365) × (12 ÷ 24) × (75 ÷ 100) = 14.4%.
  • The allowable income deductions amount to 14.4% of the total annual household costs.
  • If the total household costs are $3,000 a year, then the costs attributable to the provision of child care are 14.4% × $3,000 = $432.
  • This dollar figure (e.g. $432 in the above example) is then deducted from the gross income from child care provision.
  • If the person in the above example received $5,600 for providing child care over the year, the income for social security purposes is ($5,600 less $432) $5,168.

Example: This formula might be used if:

  • the person's tax return does not reflect current income because:
    • the number of children being cared for has changed, or
    • the level of care has changed, or
    • the deductions being claimed appear excessive, such as, 100% deduction for a stove or fridge.

Partial evidence provided

A person may be able to provide some documentary evidence to substantiate some deductions. The deductions can be allowed to calculate net income where the result obtained is more favourable to the person than using the formula detailed above.

These deductions can be used to calculate an alternate result and should not be added to the result arrived at by the formula above.

Change in child care circumstances

If a person advises that their child care circumstances have changed and that the previous year's tax return no longer provides a reasonable estimate of their current child care income, the formula (as stated above) should be applied (until details from the most recent income tax return are available) to recalculate the amount of expenses to be allowed for household expenses and depreciation.

Example: There has been a substantial increase or decrease in the number of children being cared for, or level of child care provided, compared to the previous financial year.

Last reviewed: 7 November 2016